Around the World, the Signs Of Slowdown Spiral Outward

Lower consumer and corporate spending in the United States is likely to ripple around the world. "The global turmoil has had an indirect knock-down effect on India," Duvvuri Subbarao, the governor of the Reserve Bank of India, said at a news conference at which he lowered India's growth projection to 7.5 percent for this year. "Consequently, trade for emerging economies is becoming difficult."

Brokers in Asia warned that this could be just the beginning of steep declines in the stock prices of major companies that depend on exports to the United States and Europe for much of their profit. "If Sony's earnings are that bad, other firms' earnings could also be considerably grim, and this is alarming investors ahead of earnings reports next week," Tsuyoshi Segawa, an equity strategist at Shinko Securities, told the Kyodo news service in Tokyo.

Japanese companies' plight has been exacerbated by the resurgent yen, which rose faster against the dollar in the past week than it has in the past 10 years. The currency's value is rapidly eroding the competitiveness of Japanese exports, which were already plummeting due to collapsing demand in the United States and Europe.

Other nations' currencies have the opposite problem. India's rupee fell to a record low against the dollar. The Polish zloty and Hungarian forint had their biggest weekly declines. Mexico bought $13.1 billion of pesos to keep the currency from falling further; it has had its worst decline since the country's "tequila crisis" of 1994, when the United States put together a rescue package.

The falling currencies are a sign that investors are losing confidence in those countries, and it makes their imports more expensive.

The South Korean government has injected $130 billion into the country's banks, but that failed this week to stabilize markets or prop up the country's currency. Stocks have fallen about 35 percent this month, and the won continues to be the worst-performing major currency in the world, down about 35 percent against the dollar this year.

Much of the decline in the won and in Korean shares has been triggered by foreign investors pulling their money out of the country's stock market. Foreign ownership of Korean stocks has fallen to less than 30 percent after peaking at about 42 percent four years ago, according to the Yonhap News Agency.

The deceleration of the world economy has also brought the summertime spike in commodity prices to a sudden end, an illustration of how entwined the global economy is. A credit squeeze can lead to a drop in U.S. spending, which can curb demand for Chinese exports, which can curtail demand for commodities.

Freeport-McMoRan Copper & Gold, whose exports go into everything from residential and commercial construction to electronics to automobiles, earlier this week slashed its 2008 earnings forecast to $6.15 per share from $8.50 per share because of plummeting copper prices. They have dropped more than 50 percent since June, mostly because of curtailed demand from China, the largest consumer of copper.

Freeport doesn't export directly to China, but China consumes more than one-quarter of the world's copper supply, and a slowdown there has dampened world prices.

"When you look at worldwide supply and demand, China is the gorilla," said Charles Bradford, metals analyst at Soleil Securities. "Near term, it looks like there is no bottom to the [metals] markets."

China has also trimmed the importation of other materials that have fueled its spectacular run of growth. Bradford noted that ocean freight rates for iron ore from Brazil to China are down to $12 per ton today from about $108 last May.